How to Discuss and Implement Rent Increases for Happy Tenants
Rent hikes: they’re a necessary evil for all landlords of HI real estate. As an investor well versed in local HI real estate market dynamics, you understand why rent hikes are necessary. But your tenants may not. In the event that you must increase rent, it is likely that you will face resistance, frustration, shock, and even tenant losses—that is, if you don’t play your cards right. Following the tips below will ensure that you receive fair and ample rent while continuing to satisfy your loyal tenants.
Maintain Positive and Attentive Relationships
The nature of your relationships with your tenants comprises the basis of all other financial and logistical transactions you conduct with them. If you maintain a cold and strictly business approach to tenant relationships, it is likely that they will find the blunt announcement of rate increases quite off-putting. If tenants perceive that your only prerogative is money, they will feel like pawns in your get-rich-quick HI real estate schemes. And no one wants to feel taken advantage of.
However, if you maintain a positive and benevolent relationship with your tenants, you will face less resistance in the event that you must increase the rent. If your tenants understand that you have a genuine interest in their livelihoods, they are less likely to perceive rent increases as a malicious, self-interested move.
One way to maintain positive relationships with your tenants is to focus on them. Ask them questions about their family and work lives, their passions and relationships. Get to know them on an interpersonal level. Form casual friendships, keep regular contact, and, if you feel comfortable, invite them over for dinner.
If you are renting out an apartment complex, these types of relationships are more difficult to form and maintain. Instead, you can keep documents with notes on the personal elements of your tenants’ lives. When you call or speak with them, review your notes and check in with them in a personal way. Doing so humanizes your HI real estate operation and makes tenants feel attended to, not taken advantage of.
Finally, regularly check in with tenants throughout the year to inquire as to how they feel about the property. Ask what changes they would like to see. If tenants feel that you are receptive to their needs and see you making improvements, they wont need to question why rent is rising.
Maintain Steady Increases
One of the most common mistakes that landlords of HI real estate make is failing to raise the rent on a regular basis. Perhaps they do so out of benevolent intention, or fear of troubling and losing tenants. But the long-term implications of neglecting incremental increases in market value can be devastating.
As a rule of thumb, increase rental rates by approximately 3% annually. Doing so will ensure that your rates remain competitive without falling far below market value. If you fail to make these small, palatable increases, you will be forced to make drastic hikes in the future. An incremental increase is far easier for tenants to adapt to than a sudden and unanticipated 10% increase in rent.
Never increase your rental rate by more than 8% at one time. An increase between 3% and 8% is cause for frustration and tension, of course. But once you exceed 8%, you are looking at a far greater chance of losing tenants.
If your renters are extremely resistant to even incremental increases, you can consider offering alternatives to rent hikes. For example: instead of raising the rent by 5%, you can raise it by 2% in exchange for an extension on the lease. What you lose in monthly income will be more than counterbalanced by what you save in eliminating costly turnover periods.
Give Tenants Ample Notice
Many people don’t like surprises, and no one likes a bad surprise. Springing a rent increase a mere 30 days before it goes into effect is a very bad surprise, and one your tenants might not be able to afford. Be sure to give renters ample notice of 60-90 days prior to increasing rent to allow your tenants to adjust finances accordingly.
You are required to send a written notification of rent increases on HI real estate. But doing so as your sole form of communication is a bad idea. A dry paper statement says you aren’t concerned about tenants financial situations or personal reactions to rent increases. Instead, it says to your tenants that they are only a means for you to meet your bottom line.
Instead, reach out to your tenants personally and ask them how they are doing. Express your appreciation for their tenancy and your desire to maintain it. State that the rent is increasing, and offer an explanation; market values are rising, expenditures are increasing, etc. Offering a rationale makes it clear that you aren’t taking advantage of your tenants; you are merely trying to stay afloat so you can continue providing them with quality accommodations. Open yourself to their criticism and concerns, and hear them out. If they are resistant or frustrated, express empathy and, if you are able, offer alternative options.
In sum, be communicative, empathetic, and adaptive. The social element of this exchange is often what determines whether a tenant will stay or go, not simply the value of the rent hike.